Life Insurance : A new perspective.

Life Insurance for long has been synonymous with LIC agent for all of us , specially with the generation of our parents. But buying LIC policies in the name of either insurance or investment is one of the biggest mistakes that one can do to his/her money. Lets show you how it is a bad choice. Purpose behind availing life insurance should be -

“To ensure continuity of life for dependents in case of death of earning member of the family”.

A typical family person earns to suffice following needs -

• Daily expenses of the family
• Education of children
• Marriage of children
• Post retirement expenditure
• To cater various liabilities or lets say EMIs like Home Loan, Auto Loan etc.

So your life insurance should ensure that above needs are taken care of in case of your untimely demise. Though it sounds very simple to break a need in the form of 4-5 parameters, real exercise starts once you start calculating life cover needed to cover above needs. Below is a step by step guide to decide it -

1. Zero Down -
1. Make a list of all your -
1. Liabilities
2. Life-stage events
3. Responsibilities
2. Assume -
1. An average rate of inflation for the rest of your life. Thumb rule says that our generation can safely assume a rate of 5% for rest of our lives
3. Landmarks -
1. Decide time remaining for different life-stage events like marriage, graduation of children etc
4. Ballpoint -
1. Give a ballpoint value to achieve various life-stage needs as per today’s cost
5. Calculate -
1. Calculate the future value of each life-stage event by taking in view the time remaining to achieve them and average rate of inflation
6. Add -
1. Add all your liabilities (outstanding principal of loans) and the value of life stage events calculated in above step.Add a lumpsum amount to the value obtained which you may feel is required to take care of your dependents’ needs for daily expenses.

The value calculated by above process should be your ideal life cover. Now I hope all of you will appreciate that for most of us the value will vary from 1-2 crore. And all this while we felt happy for availing policies that provided cover worth 5-10 lakhs at most

Now coming to investment efficiency , typical returns of LIC policies vary from 5-6 % on an annual basis, after keeping you invested for a period of 15-25 years. Even an FD pays you around 8%. Need I say more?

Now question arises , how to avail sufficient life insurance at least possible cost?

Answer lies in Term Plan.

Below are a some suggestions to decide which plan is best for you -

• Decide tenure for which you will need the life cover. Typically it should cover your major life stage events like marriage and education of children.Don’t go over-board in deciding  tenure as one generally has adequate savings by the time one reaches twilight of one’s life and hopefully that much saving can take of one’s retirement.
• Check latest Claim Settlement Ratio* of various Life Insurance providers. A higher value of Claim Settlement Ratio mitigates chances of rejection of claim in case of one’s untimely demise.
• Compare various plans online by visiting life insurance companies websites and comparison sites like policybazaar.com etc
• Discuss product features with various companies’ representatives so that you get to know pros and cons of various products
• Inquire about features like payment mode, medical test requirement, term of the policy etc.

As life insurance has meant LIC policies for us which come with certain investments also , we have lived through myth that we get life cover for FREE. While in reality we have been paying in terms of very low returns on the money invested in policies. While some may argue that money spent on buying term plan goes waste if I survive through the term of the policy, the fact remains that it provides you “Peace of Mind” for the rest of your life.

So just go ahead and start planning on providing a cover to your family’s needs or ask us if you need any help at healthynivesh@gmail.com. Like our posts, stay tuned to our updates using facebook

You might want to read Why life insurance in detail.

* Claim Settlement Ratio refers to total number of claims settled by an insurance company. The calculation is done by dividing total number of claims settled by the total number of claims settled. For instance, if a life insurance company receives 1000 claims and settles 980, the claim settlement ratio is 98%